👋🏾, Sanjay here. What does a person have to do to achieve their dream dreams? The first step is to realize that sometimes money is not an issue and that occasionally financial planning is best left to the professionals. In my experience, most people who wish they had done some financial planning didn't actually do it because they weren't accounting for unexpected expenses - or they hadn't put forward a realistic budget 🏦.
What is a financial plan? Simply put, it’s money used with supporting solid documentation to help provide the proper resources needed to get your finances in order so you can accomplish your goals and live happily ever after. If the answer is simple or straightforward for you, you have a plan. Your goals may already be part of this plan (for example, having kids one day), but this article will help clarify your schedule so you can see why it’s crucial.
Hmm, What is a Financial Plan 🤔?
A financial plan is a roadmap for an individual or a company to reach its goals. It takes into account your existing financial situation and goals and then creates a detailed strategy based on your prioritized objectives, telling you exactly where to spend your money and when to save. It requires you to put aside some of what you earn for emergency expenses and emergency savings and to put aside money for tuition, college, and retirement. After creating this plan, put together a pocket plan that simulates your spending throughout the year. This will help you stay organized and make sure you stick to your spending limits.""
We’ve all been there. The panic of deciding what to do with our hard-earned money when we have so much that we want to do with it all. Sometimes, it’s all too easy to spend our money on things that may not be good for us or that maybe even cost too much money. We must realize that money is not an individual right that we should fight over. As long as it remains income, we as individuals can use our financial power to achieve goals and ease worries about our wellbeing. These financial strategies are not magic bullets that will solve all of our economic problems but rather techniques for managing our spending.
So. What is a Personal Financial Plan then, 🤔?
There is an easy way to start your financial planning…write down your goals. You might be surprised at how much of your finances are pre-determined. Setting goals will help answer the question: What am I going to do with my life?, not ""What am I going to spend money on?""
Cool, and how to Create a Personal Financial Plan in 6 Easy Steps
We want to tell you a secret. It doesn’t cost a thing to make a financial plan. It can actually be relatively inexpensive, and although creating one will require some work, it isn’t particularly tough to do. Your financial plan should be no more than a spreadsheet with some notes at the end. It doesn’t need a rock star attitude or be filled with inspirational quotes from Eleanor Roosevelt 😜. The secret lies in knowing how much data you need and how much knowledge you.
Step 1: Review your current finances
One of the best ways to develop good financial habits is to make getting your finances in order a part of your regular routine. As your business and personal finances grow, set some goals and milestones for yourself — something that will help you see progress toward your financial goals.
How do we feel about this? We feel really good about it. We feel like there is nothing I could have done differently. Here’s why: First, we asked ourselves what significant expenses I had every quarter. Usually, I could identify 3 or 4 huge ones. Then I did some math based on the numbers from the statements
Step 2: How to Set & Achieve Goals in Life (Short-term & Long-term)
Where are you going? It might feel like a simple question, but there are many options. Some people say they’ll sleep in an apartment, others will rent in a nearby town, others will live out of their car, and some will travel. This is true of many big decisions, starting a business, buying a new jacket for your bike, even what healthy food you should be eating...
Have you ever set goals for yourself? Are they big, grandiose things that you'll never accomplish? Maybe they were your college acceptance letter or your wedding proposal. But, if you just put in the work necessary to get what you want, then you'll start seeing your life unfold around you.
When you engage in a new activity for the first time, the totality of your experience is fresh and unformed. You can't really tell how things will go. There's no previous experience to compare against or to compare against. To succeed, you must act soon, or there's a very good chance you won't stick with the activity and use an already existing system to springboard you. We like to use the S.M.A.R.T goals system:
If you want to have at least $600.00 in your savings account by the end of next year. That's where it starts — this financial year, and going forward — setting aside what you can. It's no hard-and-fast rule – life will throw curveballs, and your savings may go up or down in absolute terms. But while life will surprise you with money, it's those unexpected fast tracks that will do the hardest-hitting for your bank account.
When you have a short-term goal, like putting $50.00 in your savings account, it's naturally motivating to see $50.00 coming in each month. This keeps you going every month and shows progress each week.
How to create a debt reduction plan
Think about your debts. Are they really large? Maybe you repay one every month rather than spread the costs over several years. Either way, you probably pay far too much interest on these types of debts.
Step 3: How to create a debt reduction plan
Struggling to handle several debts at once, it might help to see whether you can consolidate everything into one, cheaper loan. You’ll save thousands of dollars by fending off these creditors one by one, and that will set you up well to take on the next one down the road.
It's easy not to think about your debts. You focus on the present and don't want to think about debt. The problem with this is that you ignore the future, and the debt will only worsen. Let's start by establishing some perspective. I want you to imagine yourself in your 20s, and you have $100. If you spend $100 at Starbucks every month for the rest of your life, someday, that sum will be $1,200. No matter how much you save or invest this money, it won't grow indefinitely. You have to start thinking of higher-level debt by imagining that it's 3 years from now and 20 years from now.
Your debts come in many different forms and have other balances. Your immediate obligations might include credit cards, medical bills, car payments, and more. If you're trying to pay off debt quickly, there's a one-month grace period with most credit cards. You can reduce or eliminate this grace period by paying more down the road, but this will consume your payment a little more each month than they would be currently making off your principal.
Step 4: Starting an Emergency Fund
How do you know if you have an emergency fund? Easily. If something comes up that impacts your finances – a family emergency, a car repair, an unexpected expense – and your panic buttons are all fast-flashed, run to your emergency fund.
Set aside some money for your future needs, denoted by a number such as six months, three months, one year, etc. Make frequent small monthly transfers from this fund into your bank account (direct deposit works). Ensure the transfers are small so that you don’t feel obliged to use them up immediately when an emergency arises.
If you have an unsecured budget and you frequently make purchases you know you could afford if some disaster struck, such as car repairs or home improvements, then an emergency fund will help you. Basically, you'll have enough money to absorb unexpected expenses without disrupting the flow of earning income. If you have a steady monthly income from a stable job, this might be enough. However, if you do freelance work or are self-employed, it'll probably be more helpful. Most freelancers have some flexibility in their work schedules, so planning ahead is crucial.
Creating an emergency fund can be one of the trickiest parts of managing financial goals. However, the consequences of not having one may be disastrous. Having a cash reserve can help you through unexpected expenses or a sudden loss of a job.
Step 5: Start Retirement Planning
Retirement planning, is there anything that can be done to ensure your retirement is actually happening? Not just some future event, but a target you actually want to achieve? If you don't have a proper plan, it's effortless to get yourself into trouble. Basically, there are three ways to go about this problem: FOMO (Fear of Missing Out), ISC (Insight Sensitive Charity), and IRFN (Lasting Interest on Net Debt). All are harmful if left unattended.
You have probably heard the saying that your will is your last insurance policy. This is true as far as most insurance policies go. But, this saying could also be applied in the other direction. We are the only entity that owns our bodies, and, like it or not, they do have a life of their own. Every bit of effort put into creating a plan for your death should be taken seriously.
Step 6: Investing Made Easy For Your Future
When you’re trying to figure out a path to financial freedom, it can be tempting to look at all of the steps at once. But that often results in creating a rabbit hole of work. Typically, however, the best way to approach building wealth is to break down your goals into smaller pieces and work on them in small steps.
Whether we like it or not, the stock market can make us uneasy. The fear of a market crash or seeing what we have worked for goes up against what others have – it can drive us crazy! But one factor which acts as a counter measure is how money is managing our lives.
Do you have enough cash to do whatever you like? What is your current health status?
- Early Retirement age: When are you planning to stop working for the "Man"? (be realistic with your existing timelines)
- Lifestyle: What type of lifestyle are you trying to build. How are you planning to cover your expenses?
- Current health: Without health, there is no wealth. What well-being activities are you going to be doing for yourself?
- Percentage money: What's the percentage of your current paycheque you're going to pay your future self?
Consult with a wealth advisor or someone you're confident know their issh if you're looking for extra guidance on investing.
Step 6: Keep Track of Your Financial Plan
The more you know about your current financial situation and where you're headed, the more confident you'll be in your spending. Once you've created your financial plan, you'll need to follow it and use it to track your progress. Try to keep a rolling review meeting with yourself on a bi-weekly or monthly basis.
You can create your plan even if you have a low income, and you can fulfill your ambitions while getting rid of financial troubles. The most important thing is to plan for achieving your goal, and then you can start making and saving money.
Let's get sh*t done, together!
If you are an entrepreneur, we're here to help you launch your ideas to the world. Get the advice you need to start, learn, build, and grow your business today. Subscribe here for free access to our library of resources.